Back when you were starting out in your career as young professionals, you may have eventually decided that renting was no longer a wise option, so you decided to make an investment in your first new “track” or “starter” home. Although it was a basic starter home, you may have been lucky to have the opportunity to make certain selections from a pre-approved list, such as type of floor plan, exterior brick or paint color, interior carpet, wall paint colors, as well as basic appliances.
When you are young, investment plans are very similar to your first-time home-ownership goals. The most important thing is just to get started. At this stage of life, a basic aspect of financial security may come from home ownership, as well as commencing with a basic investment plan, such as starting to invest in your company 401(k) plan.
Fast forward thirty years or so, and you find that the kids are grown and hopefully self-sufficient, your career growth is at its peak, and retirement is on the horizon. At this point, you find yourselves with discretionary income and savings, and you may begin toying with the idea of a major home renovation, buying that second home, or building a dream home customized to fit your current needs for entertaining, a home where the extended family can gather, a room for hobbies, or building in the city for a change of scene, etc. But to get it your new home just the way you want takes time and planning. You need to imagine how your vision will come together.
At this stage of life, it is also critical to concurrently review your investment plan, and customize it to address your current needs and goals, as well as your future needs and goals. Your time to accumulate assets has stopped or slowed down, and the development of a customized distribution plan is vital at this point in your life.
As you know, customized investment and retirement plans are rarely accomplished with an individual investment theme or product. However, too often in my career, I have actually seen individuals purchase a product or a single investment, assuming it will achieve all possible characteristics of the perfect investment. Similar to building a custom home, a customized investment plan should provide different investment opportunities for achieving various goals during retirement. The most important investment characteristics are as follows:
1. Income - both from dividends and interest.
2. Growth - to keep up with inflation.
3. Risk Management - to manage market volatility.
4. Liquidity - an emergency fund/assets.
5. Tax-efficient - on allocations, to manage the long-term effect of Global Investments.
Similar to building a custom home, your custom retirement plan takes time to design, construct, review, and revise as needed. Constructing a retirement plan with a solid foundation that will withstand the test of time should be a priority for individuals approaching retirement.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.